Agency Chiefs See Social Future But Are Divided On Performance-Based Compensation

It's not all about addressable, data-driven media in the world of the agency according to leaders from several top agencies gathered last Thursday for a panel at the DeSilva+Phillips Media Dealmakers conference.

For agencies, it's about social.

So much so that two panelists - Jon Bond, CEO of Big Fuel, and David Jones, Global CEO of Havas Worldwide - even got into a little argument about who's social agency is bigger. Never a pretty discussion. Jones appeared to win in that he said his was 2,000 strong, but Bond looked unconvinced as he looks to scale his social media, pure-play agency to the mid-200s in a couple of months from 80 or so.

The takeaway from the panel was that marketers have definitely made an impression on agencies about social. "Social" is no longer a testbed which may or may not result in a "viral" video that will be added to the chief marketing officer's board presentation.

To relate it to the data-driven ad landscape, if data is everywhere and can be collected to generate actionable insights for the marketer, so too is social media going to be everywhere according to the execs. How many of these strategies can show clear lift in unit sales (as Wieden+Kennedy's famous Old Spice campaign did for Procter & Gamble) remains unclear, but agency execs are ramping up.

Havas' Jones said talent and technology would be a differentiator in the social media agency. This contrasts with most agency trading desks (WPP is an exception, for example) in the big ad holding companies who have demurred when talking about owning technology. The vibrant display ad ecosystem sufficiently supplies the latest tech on a leased basis and thereby reduces risk of owning quickly depreciating, unattended tech assets. Social agencies appear to want to own tech.

By the way, it's a good thing Klout exists because whenever you hear about agencies (or VC for that matter) talk about social they like to talk about the influence scoring system of Klout. Someday it would seem possible that marketers could ask a potential social agency of record, "What's your team's collective Klout score?" Or "What is the Klout score of a Twitter account of one of your current clients?"

Marketers As Media; Procurement Fun

Another important element to agency social strategy appears to emanate from many marketers' dream - they want to be the media - as brands exchange treasure chests full of brand dollars for "branded entertainment." The challenge for agencies is can they create a credible, branded community in the social space?

As a result, agencies appear to be getting into the publishing business as Big Fuel's Jon Bond said, "I think social media at-scale is one of the big issues. Social media inherently works because a lot of it is about third-party credibility. It's more credible than a marketer talking directly to the consumer. That's where we think setting up as half a media business and half an agency is going to work."

Speaking about the challenges of agencies working with procurement officers, Bond (formerly of agency kbs+p) was emphatic, "We've got to be compensated on results. (...) The only way for us to make the money we deserve is to risk making more money. The tipping point is the measurability of TV. When that happens - it's very close - then all hell breaks loose. But then you go back to the earlier question which surrounds not enough upside (for agencies today). You've gotta have the upside and the only way to have that is to have the client know they're getting more than they're paying."

Howard Draft of DraftFCB agreed on the procurement issues with Bond for the most part, but he said that today he still had to cover costs and add a small margin. Therefore, he was suspect of the performance model. Bond responded that it comes down to the improved measurability. Draft didn't budge and thought the measurability would never be that good. He worried that a performance-based compensation model can create a potential scary situation and offered a hypothetical example where a client might require the use of creative that the agency knows won't work and thus threatens the agency's performance-based compensation. Draft said you'd need to control the business decisions of the client - meaning... never gonna happen.

Havas' Jones appeared to split the difference and said his agency had a 40% incentive bonus on top of an unnamed client's global fee and said that the additional, performance-based compensation works very well as the client is more than happy to pay if the client is making more money.

After listening to the panel, there is room for risk-takers in the agency business. Bond appears to be ready to roll the dice.

Publishers As Agencies

Finally, one questioner from the audience asked whether the agency players on the panel were threatened by companies like Meredith Corporation and Hearst which were adding agency services with such recent acquisitions as Hearst's purchase of iCrossing. Howard Draft was dismissive and answered tersely, "No." Take that media companies!